Spain’s flimsy excuses for its rampant deficit spending

Once again, Spain will fail to meet the deficit spending target set by Europe for 2016. On Wednesday evening, while the debate leading up to Rajoy’s confidence vote was in progress in the Spanish parliament, the Treasury announced that the State’s central administration has incurred a €29.8bn spending deficit since January this year, which represents nearly a five-billion increase year over year. In total, the spending deficit amounts to 2.66 per cent of Spain’s GDP, 3.1 per cent when you include the regional deficit. Spain’s allotted deficit cap for all of 2016 is 4.6 per cent, so it has become immediately apparent that the target won’t be met despite Europe’s concessions —made barely one month ago— and the hefty fine that Brussels wrote off after Spain repeatedly failed to fulfill its commitments.

According to the statement released by the Spanish ministry, the country’s failure to meet the objective is “entirely” justified by the payment of €7.9bn which the Treasury had to make to Spain’s regional governments as part of their 2014 funding. Under the current regional finance system, every year the Spanish central government estimates its tax revenues and transfers an advance to the regional governments. Two years later, the accounts are settled and any outstanding amounts are then transferred. More often than not, the Spanish government’s initial estimate falls short and its bias is detrimental to the regions’ finances. Precisely because of this mismatch between the amount forecast and the actual revenue raised, the Catalan government was €1bn out of pocket in 2014 and 2015, while the central government used this cash to finance itself.

Spain regional governments are typically blamed for all sorts of wrongdoings. Unsurprisingly, the ministry’s statement did not mention that revenue from business tax —the third highest— has taken a nosedive, falling by 85 per cent and down to a meagre €436m, which is a far cry from the €3bn raised during the first seven months of 2015. Likewise, the statement made no reference to the fact that this drop in revenue is the result of wholly irresponsible tax cuts made during the election campaign last year. It is much easier to blame the regional governments instead, even though they finance the central administration for two years and are expected to meet much more stringent deficit targets than Madrid sets for itself. In a nutshell, they are all but flimsy excuses.